Category: Questions

Sometimes it’s taken as a given that there wouldn’t be two parties trading derivatives, if the trade didn’t make both parties better off. Because the existence of the trade counts as the evidence of efficiency, it’s not uncommon to see conclusions like the following:

[D]erivatives are used by financial institutions and corporations to adjust their exposure to particular financial risks, such as the default of a borrower or wild swings in interest rates. Both in theory and practice, these products have made the hedging and exchange of risk in the financial system more efficient.

It is clear that one of the implicit assumptions in the theory underlying the claims that derivatives make the financial system more efficient is that the parties to the trade have similar information. It is also abundantly clear that in practice this is not always true – as documented in recent lawsuits derivative markets are rife with asymmetric information. Another issue is externalities – it is likely that the systemic effects of trade in derivatives are not taken into account by the counterparties to any given trade. For these reasons I think the question of whether derivatives make the financial system more efficient merits more careful analysis.

In my view, while there are many circumstances in which derivatives enhance efficiency, one cannot make a general statement that derivatives contribute positively to economic efficiency. In particular, our current derivative markets are very successful at transferring credit, interest rate and even liquidity risk (via collateral requirements) out of the financial system and onto the real economy. The question that must be asked is whether we want the real economy to bear these risks or whether we are better off forcing the financial system to bear these risks.

I’m going to propose a theory: The role of financial intermediaries is to act as the economy’s managers of the risks involved in lending.

Traditionally there are two principal ways that intermediaries manage these risks: the first is to make a loan and carry all the risks of the loan on the balance sheet until the loan is paid off, the second is to sponsor a borrowing firm in its efforts to raise money on stock or bond markets. The first kind of intermediary is called a commercial bank, and because the bank carries the loans on its balance sheet until maturity, the traditional commercial bank can generally be counted on to manage the risks of lending carefully. The second kind of intermediary is an investment bank; traditionally an investment bank’s reputation for carefully vetting the quality of the stock and bond issues that the bank chose to underwrite was crucial to its ability to place the issue. Thus, by first approving the stock or bond issue and then by making a market in the stock or bond after it was issued, the investment bank played a very important role in managing the risk of the security.

We learned in the 1920s the dangers of market-based lending: because a stock (or bond) issue almost always relies on the imprimatur of a trusted bank or other gatekeeper, that gatekeeper can make a fortune by abusing the public’s trust. In many ways this is the same lesson we have relearned in recent years. While market-based lending has the advantage that it enables firms to raise very large amounts of money from a broad base of investors, this broad base of investors also generates the greatest weakness in market-based lending: it depends on gatekeepers who may or may not do their jobs well.

Thus, from the point of view of the economy as a whole the safest form of lending is lending that sits on the balance sheet of a bank until maturity. This lending is safe precisely because the bank is exposed to all of its risks, and therefore can be expected to manage them. There are a couple of provisos to this last statement. First of all, liquidity risk has always been something that individual banks can not manage entirely on their own. Reasonably stable banking systems have either developed means to deal with liquidity risk cooperatively or they have government sponsored support to help them through liquidity crises. Secondly, there is little historical or contemporary evidence that banks which have to manage interest rate risk without government support are willing to make long-term fixed rate loans. On the other hand, a very long history of banking and banking systems demonstrates that banks can manage credit risk and interest rate risk of three to five years very effectively.

Given this understanding that banking systems serve the economy by carrying the risks of making loans on their books – and indeed their main form of compensation, the net interest margin, is derived from the fact that banks carry that risk – we can now ask: Do derivatives make the financial system more efficient?

Let’s separate this into two different questions: Is the economy well served by credit default swaps that allow the financial system to transfer credit risk away from the banks? Is the economy well served by interest rate swaps that allow the financial system to transfer the risk of interest rates changes outside the banks?

Just as we learned both in the 1920s and more recently that market based lending is less reliable than bank based lending precisely because the bank is transferring the lending risk to other parties, we are likely to find that derivatives create a less reliable financial system than would be the case without derivatives precisely because derivatives make it easy for banks to transfer the risks of lending to others. Like the gatekeepers of market based lending, banks that transfer their risks using derivatives may at times do so in ways that abuse the trust of their counterparties.

In short if carrying credit risk on their balance sheets is one of the most important roles that financial intermediaries play in an economy, then making it easy for banks to transfer credit risk outside the banking system is likely to be destabilizing rather stabilizing for the simple reason that credit risk will end up being carried by entities that don’t know how to evaluate and manage it. This would be one reason to doubt that credit derivatives make the financial system more efficient.

Interest rate swaps are more complicated, because the US now has a financial system where it is considered normal for banks to make 30 year fixed rate loans. This system was created in the 1930s as a way to deal with a vicious cycle of homeowner insolvency: because so many homeowners couldn’t refinance their five year interest only mortgages when the principal payment was due, homes had to be sold and there were so many sellers that house prices were seriously affected – guaranteeing that even more homeowners couldn’t refinance. The solution to this vicious cycle was the thirty year fixed rate mortgage – except for the fact that there was no such product on the market.

I’m not sure when precisely the thirty year fixed rate mortgage became common, but the 1930s saw vast government efforts to support the residential mortgage market. In 1932 Herbert Hoover signed into law the Federal Home Loan Bank Act, which established Federal Home Loan Bank System, a mutual organization that raises money on public markets and stands ready to buy mortgages from member savings and loan banks. (It was modeled on the Federal Reserve System which through its discount window stands ready to buy commercial obligations from member banks.) In 1934 the Federal Housing Administration (FHA) was established. The FHA offered government mortgage insurance on loans that met the standards of the FHA. Because banks were reluctant to buy FHA mortgages, in 1938 the Federal National Mortgage Association (Fannie Mae) was created as a government agency that bought FHA mortgages. Somewhere along the line the thirty-year fixed rate mortgage became a staple of the industry. In the absence of substantial government sponsorship of this mortgage product it’s hard to imagine that banks would be willing to offer such mortgages or hold them on their balance sheets.

The savings and loan crisis of the 80s was caused by the fact that these banks were carrying 30 year fixed rate mortgages on their books and were completely unprepared to deal with the interest risk created by their long duration assets. (No bank can make money if it has to pay 10% on deposits and only earns 5% on its portfolio of loans.) The interest rate swap market – which was pretty clearly the catalyst for the more general growth of modern derivatives markets – developed as a response to the savings and loan crisis and the recognition by financial institutions that their long duration assets exposed them to interest rate risk. Interest rate swaps allow banks to convert their fixed rate assets into floating rate assets and thus have an important role to play in US markets as they are currently structured.

The savings and loan crisis can, however, be viewed as a sign that from a systemic point of view that 30 year fixed rate mortgages are simply too dangerous a product. Shifting towards a shorter duration mortgage product or one with some measure of floating rates (and there are many, many examples of such products abroad) might have been a better choice for the financial system. Thus the problem with interest rate swaps may be that they encourage individual banks to “manage” interest rate risk, when in fact it is far from clear that the financial system as a whole is equipped to deal with the aggregate exposure to interest rate risk that the 30 year fixed rate mortgage creates.

In short, the problem with derivatives is precisely that they allow financial institutions to transfer risk. In the case of credit derivatives the problem is that credit risk is too easily transferred away from the financial institutions that are specialists in credit risk to non-specialists who don’t really understand the risks they are carrying. In the case of interest rate swaps, the problem is that the perception that interest rate risk can be traded away leads to the growth of excessive interest rate risk in the financial system as a whole. It is not unlikely that when there is actually a significant jump in interest rates, many of the counterparties that are carrying that risk will be bankrupted by it and we will find that once again the government needs to step in as the derivative underwriter of last resort in order to prevent a chain of financial system failures. (In fact, as I think about the case of AIG, this argument about the externalities of interest rate swaps seems to hold pretty well for credit derivatives too.)

Calculating the exposure of a CDO to synthetic assets is complicated for two reasons: (i) first because, not only can the CDO itself use swaps to generate synthetic exposure, but also the CDO and RMBS tranches in which the CDO invests may include synthetics; and (ii) secondly, because the tranche structure of CDOs complicates things.

Because it is easier to create synthetic exposure to an asset than to originate an actual loan (remember creating a synthetic asset involves selling protection on an asset, not buying it — thus you just need to find counterparties willing to pay small premia for protection), I will generally assume that the synthetic exposure of a CDO or RMBS is close to the limits permitted in the deal documents. This is an assumption and therefore subject to correction if the actual data is ever made public.

The collateral underlying the Broderick I CDO is 20% CDO, 80% RMBS. 20% of this collateral may be in the form of synthetic assets. Since the industry (and undoubtedly Merill Lynch in particular as a major CDO issuer) had a great need to place junior CDO tranches most likely it was the RMBS that was referenced synthetically, not the CDOs. So as a working assumption lets consider that the Broderick I CDO is 20% CDO, 20% synthetic referencing RMBS and 60% RMBS.

The thing to remember is that the 20% CDO collateral is likely to also be 20% synthetic. I’m not going to make any assumptions about the synthetic exposure in the RMBS, because I haven’t found reliable information on the issue, but there is no question that some synthetic RMBS were issued. Thus Broderick I could easily be backed by 24% synthetic assets — and possibly more.

But it’s important to understand that 24% would be a low estimate of Broderick’s exposure to synthetic assets. This is because the structure of a CDO is designed to concentrate risk by increasing the exposure of the junior investors to losses..

To explain, consider a simple tranched securitization of five $1 million mortgages with one junior $1 million investor and one senior $4 million investor. It should be obvious that the junior investor — because he absorbs losses first — has 100% exposure to each of the five mortgages. If one of those mortgages is synthetic, then the junior investor has 100% exposure to the synthetic mortgage. In short, in a CDO you must always remember that only the first priority investor is guaranteed to benefit from diversification of assets.

For this reason when calculating the exposure of subordinate CDO tranches to synthetic assets, what is important is whether the detachment point of the tranche (that is the point at which it stops absorbing losses because it is worth nothing) is lower than the fraction of synthetic assets in the CDO. If the CDO has 20% synthetic assets and the tranche in question detaches at 10%, then the tranche can be wiped out twice over by losses on synthetic assets alone. Thus it doesn’t really make sense to claim that the tranche has less than 100% exposure to synthetic assets.

Since the subordinate tranches in Broderick (as a group) detach at 16%, every one of them probably has 100% exposure to synthetic assets. If the CDOs included in Broderick are similarly structured (and if I am right that these CDOs made maximal use of synthetic assets), then it is fair to say that Maiden Lane’s exposure to synthetic assets via Broderick I is $400 million or 40% of the CDO.

Why does this matter? Because as I asked in my first post on Maiden Lane III as taxpayers we need to consider these issues:

Are we okay with the fact that financiers who saw how dysfunctional our debt markets were didn’t go off and raise hell at the Fed and SEC, but instead expressed their views via the market? Are we okay with the fact that when one of their counterparties to the expression of these views couldn’t honor it’s obligations, the taxpayer stepped to validate the existence of this market? Is there a difference between bailing out banks that were financing real economic activity and grossly underestimated the risks of that activity and bailing out traders who used derivative markets to express their views on the dysfunctionality of the debt markets?

I think we need public disclosure on each of the Maiden Lane vehicle’s exposure to synthetic assets. So we can have a robust public discussion about the role of government in underwriting synthetic assets.

This post will continue my effort to understand Goldman Sach’s huge first-priority exposure to a few of the CDOs in Maiden Lane III.

Yves Smith has some nice clues to what was going on, pointing out that the November Blackrock memo at the time of Maiden Lane III’s formation states: “Access to assets: Goldman has said that it does not hold the cash CDOs, but has back-to-back swaps on most of the positions”. (I’ll address the remarkable fact that a 20% synthetic CDO could be considered a “cash CDO” in another post.) This indicates that Goldman probably sold the first priority exposure in Broderick I on to customers, offering a Goldman guarantee on the returns in the form of a swap. Goldman then transferred this risk to AIG using another swap. In other words, this was Goldman’s clients’ CDO exposure that was protected first by a Goldman and then by an AIG swap. That this is a likely explanation is confirmed by the fact that $7.4 billion of the CDOs in Maiden Lane settled almost a month after the first CDOs were transferred because they were “contingent upon the ability of the related counterparty to obtain the related multi-sector CDOs”. In short, Goldman probably had to buy Broderick I from its clients before it could make use of the Maiden Lane facility.

However, if we are interpreting the available facts correctly and, if Goldman took almost all of the first priority Broderick I exposure in order to sell it on to clients, then we still need an explanation for why Merrill Lynch rather than Goldman was the firm originating the CDOs. The answer is probably that Merrill had the collateral and Goldman had the clients. Although Merrill wasn’t a big player in the mortgage market (and purchased First Franklin in order to change that situation), Merrill was one of the lead issuers of CDOs (2004 thru 2006). It is likely that Merrill had established an RMBS pipeline while GS had clients to whom senior CDO tranches could be sold.

It occurs to me that because the senior CDOs that Goldman was selling to clients were like covered bonds (that is investors were protected by the guarantee of the bank in case the mortgages themselves went into default) and the legal structure for the covered bond market does not exist in the US, there may have legal reasons for the issuer of the CDO and its guarantor to be distinct parties.

This innocuous explanation of Goldman’s large first priority exposure to Maiden Lane’s CDOs does not, however, obviate the main concern of my previous post: There is still plenty of reason to be concerned that Maiden Lane III has far too much synthetic exposure for taxpayers’ comfort — in part because the CDOs in question were issued right at the time that synthetic RMBS started to become more common. More in the next post.

In the Huffington Post, David Fiderer remarks on the CDOs in Maiden Lane III, that in each case the lion’s share of each CDO appears to be held by a single bank. Yves Smith replies that this was just how the business was run. I think there’s something to Fiderer’s remarks, but it will take me a while to explain why.

Let’s start with some background on Maiden Lane III. After the “rescue” of AIG in mid-September 2008, regulators found that they had granted AIG’s counterparties the right to demand cash payments of AIG/Fed/Treasury whenever the CDOs that AIG had guaranteed fell in value. Since these payments were in the billions of dollars, the Fed and Treasury found the situation objectionable. There were two choices for dealing with the situation (i) provide a formal (rather than de facto) government guarantee of the assets, which by putting a AAA backstop behind the guarantees would allow the government to take back all the collateral that had been posted or (ii) pay off the full value of the guarantee in exchange for the CDOs themselves. It’s pretty clear that the Fed did not have legal authority to provide the guarantee in (i). After TARP was passed, Treasury unquestionably had the authority to implement (i) and no one has made any effort to explain why this authority was not used.

Instead Treasury apparently decided that the AIG CDOs were not their problem. (Paulson claims that he left this one to be handled by the Fed.) The only thing the Fed could do to avoid a continuous drain due to the CDO guarantees was to buy the CDOs from the banks. (I believe that the 100% pay off was indeed to avoid triggering an AIG default per ISDA contractual terms, and thereby avoid granting all of AIGs OTC derivatives counterparties the right to terminate their contracts — that is, to avoid an implosion of the OTC derivatives market.) For this reason the NY Fed holds Maiden Lane III, a portfolio of CDOs that were once guaranteed by AIG.

It is important to understand that there were several CDOs, guaranteed by AIG that were not purchased by Maiden Lane, because the counterparties did not own them. As far as we know, whenever these CDOs fall in value AIG continues to post collateral on the guarantees. One consequence of handling the guarantee problem via Maiden Lane III is that some purely speculative contracts did not receive a formal government guarantee.

While the purely speculative contracts that received a government guarantee were limited by Maiden Lane III’s structure, the data that David Fiderer points to makes it clear that Maiden Lane III provides a formal government guarantee to billions of dollars of Wall Street’s speculative contracts.

In order to understand what is in Maiden Lane III, it is essential to understand the difference between cash, hybrid and synthetic CDOs. A cash CDO is a product that was created about twenty years ago. It puts together a portfolio of loans that were used to finance real economic activity and allows investors to choose whether they want a high or a low risk exposure to this portfolio. A synthetic CDO is a product that was created over the past decade which allows investors to take on risk comparable to that of investing in a cash CDO (plus the swap counterparty risk of a large financial institution) without financing any real economic activity. Thus the purpose of a synthetic CDO is to make it possible for CDO investors to sell guarantees on loan performance to the financial industry that is originating the loans (thus creating a massive moral hazard problem). A hybrid CDO has some cash assets but also uses swaps guaranteeing loan performance to generate a large portion of the CDO’s exposure.

As far as I can tell almost all the CDOs in Maiden Lane III are hybrid CDOs and therefore a significant portion of Maiden Lane III is being used to recieve premium payments from Wall Street firms, hedge funds, etc. in exchange for payments from the federal government on their speculative positions if the financiers’ asset price predictions (on the loans originated by other financiers) turn out to be correct. The question, however, is how much of Maiden Lane III is financing speculative positions and how much is financing real loans. A brief review of some of the deal documents (many of which are available at the Irish Stock Exchange website) shows that many of the Maiden Lane III CDOs had limits on synthetic securities of about 20%. This leads to an preliminary estimate that up to 20% of Maiden Lane III is financing speculative positions.

The data David Fiderer has pointed to makes it clear, however, that 20% is almost certainly too low an estimate. Fiderer focuses on the magnitude of Societe General and Goldman Sachs’ exposure to each of the CDOs that AIG guaranteed for them. Now SocGen’s exposure is, in fact, unremarkable. When you look into the SocGen deals you find that in almost every case the senior tranche was initially funded by commercial paper. It’s pretty clear that in 2007 SocGen, like Citibank, had massive off-balance sheet exposure in the form of liquidity puts that supported commercial paper issuance by CDOs. When the asset-backed commercial paper market collapsed in 2007, SocGen was forced to honor the liquidity puts and take the CDOs on balance sheet. Unlike Citi, SocGen had chosen to pay for a guarantee from AIG, just in case the market collapsed.

Goldman Sachs exposure is much harder to explain. I’m going to focus on the Broderick CDO I deal, since the specifics matter and it takes too much time to look into all of the deals. It’s pretty clear that Goldman had almost all of the first priority exposure to Broderick I and that it had chosen to buy protection on this exposure from AIG.

What I’m having difficulty making sense of is how the economics of this deal could possibly work if only 20% of the $1 billion deal was synthetic. If 80% of the deal was cash, $800 million were needed to buy cash assets. Goldman with the first priority exposure took 84% of the deal, so only $160 million were raised from other investors. This implies that Goldman put $640 million cash into this one CDO. Not likely.

Here are my possible explanations of what’s going on:

(i) Positive carry. Goldman’s cost of funds were so low that it actually did choose to put $640 million into Broderick I and earn an interest rate differential. But this differential could not be large and would probably be consumed by the costs of paying AIG for protection — on a fully funded position — and of hedging interest rate risk on Goldman’s cost of funds. The positive carry explanation works for firms like UBS that believed the most senior tranches of CDOs were riskless, not for a firm that pays to hedge its risks.

If there wasn’t positive carry, then the position could only work for Goldman if it wasn’t fully funded. So I go back to the Broderick documents and investigate the other possibility:

(ii) Goldman funded much less than 64% of Broderick. The collateral eligibility criteria are on pages 73 to 79. It turns out that while there is a 20% limit on synthetic collateral, it appears to me that synthetic CDO securities may not fall within this limit. Synthetic CDO securities may be subject only to the CDO security limit of 20%. If my reading of the document is correct then, 40% of the CDO may be synthetic, and now we’re down to Goldman funding only $440 million cash.

This still seems unrealistically high, so I read up on the first priority tranche structure. It turns out that the $485 million of A-1 INVB notes that Goldman holds are “delayed draw” notes. They aren’t funded at the start of the deal, there is just an obligation to fund at the manager’s request. Is it possible that Goldman holds the notes, but because the manager ended up funding far less than $1 billion in assets Goldman wasn’t called on to fund the notes? No, that’s a red herring. At ramp up completion (that is, by three months after the start of the deal) any unfunded INVB position gets written down to zero.

And maybe I need to let it go there. Maybe the economics of this deal works: Goldman put $485 million cash into a deal that gave Goldman $840 million first priority exposure to about $600 million in “cash” assets and about $400 million in synthetic exposure to credit risk.

So what does this imply about Maiden Lane III’s purchase of the Broderick CDO I from Goldman Sachs? If I am correct that the $355 million A-1 INVA tranche of Broderick was unfunded and if I am correct that approximately 40% of Broderick I’s collateral is synthetic, then:
(i) Goldman was paid $840 million for a position that cost it $485 million plus an unfunded guarantee (the same kind of guarantee that the government refused to enter into when considering how to resolve AIG’s CDOs).
(ii) By buying the CDO the government has committed itself to honor the synthetic positions in the CDO. Thus the government is collecting premiums from financiers who realized the debt market was going crazy and is obliged to pay up to $400 million on contracts that referenced but did not finance real economic assets.

The question I really want to raise here is: How much does synthetic exposure in the Maiden Lane portfolios matter? Are we okay with the fact that financiers who saw how dysfunctional our debt markets were didn’t go off and raise hell at the Fed and SEC, but instead expressed their views via the market? Are we okay with the fact that when one of their counterparties to the expression of these views couldn’t honor it’s obligations, the taxpayer stepped to validate the existence of this market? Is there a difference between bailing out banks that were financing real economic activity and grossly underestimated the risks of that activity and bailing out traders who used derivative markets to express their views on the dysfunctionality of the debt markets?

I’m not going to answer these questions. But it’s certainly a discussion that needs to be carried out in full view of the public.

Thanks to the FASB’s September 2008 amendment of FAS 133, it turns out that all the market makers report the notional values of their credit derivatives positions bought and sold in their 10-Ks and 10-Qs. So I was able to look up the positions of the five biggest market makers in the US. These holding companies account for 95% of all credit derivatives bought and sold by holding companies in the US (per the OCCs data).

Here’s what I found. (Blue is credit derivatives bought, red credit derivatives sold and green is the difference between the blue and the red columns):

Observe that because we only have aggregate data, the net credit derivative position in the chart above represents a lower bound on the unmatched portion of the bank’s derivative books. It possible that when individuals companies and indices are taken into account, an accurate count of each bank’s net position would be much larger than the green column above.

To emphasize the fact that it appears that market makers are buying credit protection on their own account, here is a chart of the net credit derivatives as a fraction of the total credit derivatives bought.

We see that about 9% of the credit derivatives bought by Citigroup and 5% of the credit derivatives bought by Goldman Sachs are not matched. Most likely these firms are using credit derivatives to protect themselves against losses.

Finally we can look at the net credit protection bought relative to the firm’s assets:

This chart just emphasizes the fact that the commercial banks have much larger balance sheets than the investment banks, and thus that even though a bank like JP Morgan has a net credit derivative position that is similar to that of the investment banks, it is relying less on the protection of credit derivatives once one takes the size of the bank into account.

Because only Bank of America/Merrill Lynch is now (this is a change from previous quarters) a net seller of credit protection, we find that in aggregate the market makers are buying at least $400 billion notional in credit protection from other participants in the market. An interesting question is who is selling this protection: foreigners, insurers, end users?

I’ve been spending some time with the Office of the Comptroller of the Currency’s data on derivatives. This is what I’ve found about credit derivatives:

(i) Commercial banks tend to buy and sell credit derivatives under the name of the bank, not under the name of the holding company. The credit derivatives of the investment banks are at the holding company level although about one-sixth of Goldman Sachs’ credit derivatives are bought and sold by the Goldman Sachs Bank. (In the chart below blue is the credit derivatives bought/sold by the holding company and red is the credit derivatives bought/sold by the bank. Note that I did not actually download the data on Morgan Stanley’s Bank because its credit derivative positions were trivial.)

(ii) Because the OCC collects detailed data about the derivatives bought and sold by banks we have extensive information on the positions of Citigroup and JPMorgan. However, detailed information on the derivatives bought and sold by Goldman Sachs Group, Morgan Stanley and Bank of America (now that it includes Merrill Lynch) is not available.

On the other hand what we know about the derivatives held by banks is interesting in its own right.

(iii) Neither Citibank, nor Goldman Sachs Bank is running a very closely matched credit derivatives book. (Note that for its size JPMorgan is reasonably closely matched, but the data simply doesn’t fit on the same chart as the other banks. Also, in the chart below blue represents credit derivatives bought by the bank and red credit derivatives sold by the bank.)

(iv) What’s more interest the difference between credit derivatives bought and sold doesn’t show up as much in the data on credit default swaps. (In the chart below blue is now CDS bought by the bank and red CDS sold by the bank.)

While some of the market makers may be running matched books, it certainly looks as though others are using the credit derivatives markets to buy protection for themselves. Given the pricing power currently in the hands of the market makers, it may be worth paying close attention to the trades of market makers who are trading on their own account in a big way, because there is no question that the market makers are well-placed to extract rents from end users if that is what they wish to do.

Of course, it would be far more interesting to have this data for the holding companies, because that would give us all a better idea of how the dealer banks are using derivative markets. As things stand the claim that all the market makers keep matched books does not appear to be supported by the data that we have.